I'm more worried that the Fed's continued pressure on interest rates and now several rounds of QE (with less and less effect) aren't sustainable in the long-term.

I share your concern. However, my own personal belief is that the economy is recovering and will take off after the first of the year, no matter who is president. So the real stakes in this election politically are very high. If I'm right it means either President Obama or President Romney will be taking credit for a long awaited economic recovery and the political rewards which will be significant will accrue to the winner of this years election and his party.

Yakev was pretty accurate in naming two of the most significant contributions to the BigBanks turned commodity-trading institutions turned toobigtoofail.

Repealing Glass-Steagel was the kicker that made the already large banks even larger trading firms betting with their own money. So as mortgages were the hot item, being backed too outrageous volumes by Fannie & Freddie - it was almost negligent too NOT be dealing in mortgage-backed securities since the profits were so damn good.

But to say that Bush casued the housing downturn and foreafter financial collapse is COMICAL at best duplicitous at worst. His administration was warning Congress from 2001 forward (17 times in 2008 alone) about the problems with the GSEs (Fannie & Freddie) and the systemic issue they were causing:

Quote:

For many years the President and his Administration have not only warned of the systemic consequences of financial turmoil at a housing government-sponsored enterprise (GSE) but also put forward thoughtful plans to reduce the risk that either Fannie Mae or Freddie Mac would encounter such difficulties. President Bush publicly called for GSE reform 17 times in 2008 alone before Congress acted. Unfortunately, these warnings went unheeded, as the President’s repeated attempts to reform the supervision of these entities were thwarted by the legislative maneuvering of those who emphatically denied there were problems.

2001

April: The Administration’s FY02 budget declares that the size of Fannie Mae and Freddie Mac is “a potential problem,” because “financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity.”

2002

May: The President calls for the disclosure and corporate governance principles contained in his 10-point plan for corporate responsibility to apply to Fannie Mae and Freddie Mac. (OMB Prompt Letter to OFHEO, 5/29/02)

2003

January: Freddie Mac announces it has to restate financial results for the previous three years.

February: The Office of Federal Housing Enterprise Oversight (OFHEO) releases a report explaining that “although investors perceive an implicit Federal guarantee of [GSE] obligations,” “the government has provided no explicit legal backing for them.” As a consequence, unexpected problems at a GSE could immediately spread into financial sectors beyond the housing market. (“Systemic Risk: Fannie Mae, Freddie Mac and the Role of OFHEO,” OFHEO Report, 2/4/03).

September: Treasury Secretary John Snow testifies before the House Financial Services Committee to recommend that Congress enact “legislation to create a new Federal agency to regulate and supervise the financial activities of our housing-related government sponsored enterprises” and set prudent and appropriate minimum capital adequacy requirements.

October: Fannie Mae discloses $1.2 billion accounting error.

November: Council of the Economic Advisers (CEA) Chairman Greg Mankiw explains that any “legislation to reform GSE regulation should empower the new regulator with sufficient strength and credibility to reduce systemic risk.” To reduce the potential for systemic instability, the regulator would have “broad authority to set both risk-based and minimum capital standards” and “receivership powers necessary to wind down the affairs of a troubled GSE.” (N. Gregory Mankiw, Remarks At The Conference Of State Bank Supervisors State Banking Summit And Leadership, 11/6/03).

2004

February: The President’s FY05 Budget againhighlights the risk posed by the explosive growth of the GSEs and their low levels of required capital, and called for creation of a new, world-class regulator: “The Administration has determined that the safety and soundness regulators of the housing GSEs lack sufficient power and stature to meet their responsibilities, and therefore…should be replaced with a new strengthened regulator.” (2005 Budget Analytic Perspectives, pg. 83)

February: CEA Chairman Mankiw cautions Congress to “not take [the financial market's] strength for granted.” Again, the call from the Administration was to reduce this risk by “ensuring that the housing GSEs are overseen by an effective regulator.” (N. Gregory Mankiw, Op-Ed, “Keeping Fannie And Freddie’s House In Order,” Financial Times, 2/24/04).

June: Deputy Secretary of Treasury Samuel Bodman spotlights the risk posed by the GSEs and called for reform, saying “We do not have a world-class system of supervision of the housing government sponsored enterprises (GSEs), even though the importance of the housing financial system that the GSEs serve demands the best in supervision to ensure the long-term vitality of that system. Therefore, the Administration has called for a new, first class, regulatory supervisor for the three housing GSEs: Fannie Mae, Freddie Mac, and the Federal Home Loan Banking System.” (Samuel Bodman, House Financial Services Subcommittee on Oversight and Investigations Testimony, 6/16/04).

2005

April: Treasury Secretary John Snow repeats his call for GSE reform, saying “Events that have transpired since I testified before this Committee in 2003 reinforce concerns over the systemic risks posed by the GSEs and further highlight the need for real GSE reform to ensure that our housing finance system remains a strong and vibrant source of funding for expanding homeownership opportunities in America… Half-measures will only exacerbate the risks to our financial system.” (Secretary John W. Snow, “Testimony Before The U.S. House Financial Services Committee,” 4/13/05).

August: President Bush emphatically calls on Congress to pass a reform package for Fannie Mae and Freddie Mac, saying “first things first when it comes to those two institutions. Congress needs to get them reformed, get them streamlined, get them focused, and then I will consider other options.” (President George W. Bush, Press Conference, The White House, 8/9/07).

September: RealtyTrac announces foreclosure filings up 243,000 in August – up 115 percent from the year before.

September: Single-family existing home sales decreases 7.5 percent from the previous month – the lowest level in nine years. Median sale price of existing homes fell six percent from the year before.

December: President Bush again warns Congress of the need to pass legislation reforming GSEs, saying “These institutions provide liquidity in the mortgage market that benefits millions of homeowners, and it is vital they operate safely and operate soundly. So I’ve called on Congress to pass legislation that strengthens independent regulation of the GSEs – and ensures they focus on their important housing mission. The GSE reform bill passed by the House earlier this year is a good start. But the Senate has not acted. And the United States Senate needs to pass this legislation soon.” (President George W. Bush, Discusses Housing, The White House, 12/6/07).

February: Assistant Secretary David Nason reiterates the urgency of reforms, says “A new regulatory structure for the housing GSEs is essential if these entities are to continue to perform their public mission successfully.” (David Nason, Testimony On Reforming GSE Regulation, Senate Committee On Banking, Housing And Urban Affairs, 2/7/08).

March: Bear Stearns announces it will sell itself to JPMorgan Chase.

March: President Bush calls on Congress to take action and “move forward with reforms on Fannie Mae and Freddie Mac. They need to continue to modernize the FHA, as well as allow State housing agencies to issue tax-free bonds to homeowners to refinance their mortgages.” (President George W. Bush, Remarks To The Economic Club Of New York, New York, NY, 3/14/08).

April: President Bush urges Congress to pass the much needed legislation and “modernize Fannie Mae and Freddie Mac. [There are] constructive things Congress can do that will encourage the housing market to correct quickly by … helping people stay in their homes.” (President George W. Bush, Meeting With Cabinet, the White House, 4/14/08).

May: President Bush issues several pleas to Congress to pass legislation reforming Fannie Mae and Freddie Mac before the situation deteriorates further.

“Americans are concerned about making their mortgage payments and keeping their homes. Yet Congress has failed to pass legislation I have repeatedly requested to modernize the Federal Housing Administration that will help more families stay in their homes, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance sub-prime loans.” (President George W. Bush, Radio Address, 5/3/08).
“[T]he government ought to be helping creditworthy people stay in their homes. And one way we can do that – and Congress is making progress on this – is the reform of Fannie Mae and Freddie Mac. That reform will come with a strong, independent regulator.” (President George W. Bush, Meeting With The Secretary Of The Treasury, the White House, 5/19/08).
“Congress needs to pass legislation to modernize the Federal Housing Administration, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance subprime loans.” (President George W. Bush, Radio Address, 5/31/08).
June: As foreclosure rates continued to rise in the first quarter, the President once again asks Congress to take the necessary measures to address this challenge, saying “we need to pass legislation to reform Fannie Mae and Freddie Mac.” (President George W. Bush, Remarks At Swearing In Ceremony For Secretary Of Housing And Urban Development, Washington, D.C., 6/6/08).

July: Congress heeds the President’s call for action and passes reform of Fannie Mae and Freddie Mac as it becomes clear that the institutions are failing.

Can't speak for others, not everyone who is scared of Obama's platform is a clone of one another. POTUS is a big job, just like any senior leadership role.
You cant devote enough time to that and be father of the year, there are not enough hours in the day. How much time do you think the senior VP's of Google, or Apple, or General Electric, etc. spend with their kids compared to the guy who stocks groceries? There are a LOT of jobs and paychecks dependant on the people at the top of these entities, and the needs of the many outweigh the needs of the few.

I can understand if Obama wants to be the dad he never had, but maybe that means that POTUS is not a good fit for him. As the CNN article I posted says, even Clinton made more time for schmoozing than Obama, when he also had a child in school.

If you're saying that being a good president (or CEO for that matter) means you must be a bad father I simply don't agree. I like that we have a president who takes his job as president seriously and also loves his family and cares about being a good father. Those are fundamental American values which are not mutually exclusive and I admire the president for holding to them.

As far as the president's schmoozing ability it's a little ironic to me that you have these kinds of concerns especially since your party's nominee is (let's face it) not someone anyone even in your party really likes. It's an understatement to say he has a little trouble connecting with people. This is a man who had to rely on his VP pick to make himself legit to his own party. Doesn't speak well of his prospects for getting much done in Washington does it?

Quote:

Originally Posted by MiddleAgedAl

I guess if people honestly believed the Hope and Change mantra of 2008, then that argument sounds plausible too.....

I know you guys like to moc Obama on every front trying your best to turn the man and everything he does into a punch line. But it's really pretty simple. "Hope and Change" is catchy and sounds uplifting and inspiring. You guys just wish your candidate had thought of it. On the other hand "Take our country back" sounds regressive and fearful. And it also begs the question "just how far do we want to take this country back?" I guarantee not everyone is going to agree on the answer....

If you're saying that being a good president (or CEO for that matter) means you must be a bad father I simply don't agree.

Holding any high-level position of extreme responsibility is very demanding and time consuming (not a Mon-Fri, 9-5 job). I'm not saying being a good leader guarantees bad father, but I am saying that being a good leader makes it VERY VERY hard to be the same kind of involved dad as someone who has no such responsibilities. Simple logistics. There are only 24hrs in a day, and if a CEO of (ABC company or USA) is travelling around the world, and working 100+ hrs a week, there are simply less hours to be there, unless you want your kids up at 11:30pm every night to see you at the end of the day. It's not a subjective thing, it's basic math. Only so many hours to go around.

Alternatively, you can spend less than 100+ hours, spend more time with your kids, but you'd have to be extremely gifted to achieve in 80 hrs what your predecessors took 100 hours to do. If you are not so gifted, and your performance suffers, your stockholders might notice, and try and replace you.

Quote:

Originally Posted by BKsBimmer

It's an understatement to say he has a little trouble connecting with people. This is a man who had to rely on his VP pick to make himself legit to his own party. Doesn't speak well of his prospects for getting much done in Washington does it?

Romney does not appear to be Mr Charisma, I'll grant you that. Personality wise, in terms of playing to the cult of celebrity, Obama wins there, no doubt. Whether or not Romney would struggle as much as Obama has to get the 2 halves of congress co-operating in actual practice, that remains unknown.

Obama was presented as the great communicator, who could leverage his engaging personality to get the Hatfields and McCoys to sit down and have dinner together, and that has certainly not turned out to be the case at all. Going in, we had no other large organzation to gather data from, he ran nothing of that size or political complexity before, so voters had to take him at his word, and make judgements based on his public speaking, which he is very good at.

In contrast, in Romney's case, he did take the olympics that were spiralling out of control, and wring a good final result out of it. Anyone who has dealt in any capacity with the International Olympic Committee knows that is all positively saturated with politics and conflicting personal agendas, and he (or his designates) were obviously able to deftly navigate that minefield and produce a great end result.

Reading that whole article, it appears that it's not just Republicans who are sitting on their hands instead of moving the ball down the field:

"Republicans in the Senate did not necessarily object to the measure, but they protested Thursday after Democrats refused to allow votes on other amendments."

"Democrats on Capitol Hill are hesitant to quickly hold votes on Obama’s proposal – and in fact are still drafting it -- even though polls show Americans support asking wealthier households to pay more. They conducted their own filibuster of McConnell’s offer as Obama is on the road, making his case for tax changes at campaign stops in critical swing states."

Oh right, I forgot, when a Democrat gums up the works, that's not being intransigent, that's upholding his principles.

You left out what I consider to be a huge factor, which is Clinton's affordable housing act, which basically made it much easier for anyone with a pulse to get a mortgage. This drove prices to irrational levels, because the previous barrier to entry to get a mortgage was gone, so now you have dumb highschool dropouts who understand nothing about economics engaging in crazy bidding wars. Once they lose their shift at Jack in the Box, now they cant make the payments on their original mortgage, plus the HELOC they used to buy a new speedboat they couldnt afford either. That planted the seeds for the housing bubble, which, combined with the Acts described above, started the financial death spiral we are all too familiar with today.

I'm not saying Dubya was the finest president ever, but to blame him 100% for what happened is quite short sighted. Perhaps some of the posters are too young to remember what happened when Bill was in office.

Even as things started to collapse, in the final days of the dubya administration, I dont recall them saying the housing crisis is all Clinton's fault, the way the Obama administration likes to say it's all Bush's fault. Every president after Washington had to deal with the baggage of their predecessor, it comes with the job. I dont recall any of them pointing the finger at the previous administration as much as the current one does.

Regarding the bolded sentence, could I please trouble you to post the text in the law that caused banks to lend to people that couldn't afford to buy?

These are the mechanical causes of the great recession in my humble opinion, and there's plenty of blame to go around:
1. Greenspan lowered interest rates to 1 percent and kept them there for about a year. This causes anything priced in dollars to appreciate.

2. Low rates = poor yields from munis and treasurys. So money managers turned to high-yield MBS. Very few, if any, did any due diligence on them, didn't understand the instruments or the risk involved.

3. Fund managers relied on the ratings agencies that placed AAA ratings on these securities, claiming they were as safe as U.S. Treasurys.

4. Derivatives became unregulated via the Commodity Futures Modernization Act (pushed by Phil Gramm and signed into law by Clinton in 2000). They are exempt from all oversight, counter-party disclosure, exchange requirements, state insurance regs and reserve requirements. This is how AIG was able to write $3 trillion in derivatives with no reserves against future claims.

6. The banking system's compensation system is skewed in favor of short-term performance.

7. The demand for high yield led Wall Street to start bundling mortgages. Subprime mortgages were the highest yielding, in markets that were dominated by non-bank originators (who were exempt from most regulations - think AHM, for example). The Federal Reserve could have supervised them. Greenspan let them go.

8. “Innovative” mortgages were created to reach more subprime borrowers. These include 2/28 ARMs, interest-only loans, piggy-bank mortgages and neg-am loans. These mortgages defaulted in significantly higher numbers than traditional 30-year fixed mortgages.

9. Mortgage originators didn't have to hold onto the mortgages for long and got 'creative' with their standards. Not because of regulations (Dick Fuld even admitted that he was never forced to fund a mortgage) but, I mean, why worry about the quality of your product if you're just going to dump it on someone else in a year or so? They just had to hold them long enough to bundle them and sell them to the highest bidding chump as AAA paper.

10. Traditional banks set up automated underwriting systems to keep up. Which were gamed by loan officers paid on loan volume (as opposed to loan quality).

11. Glass-Steagall repealed in 1998. Already mentioned, enough said.

12. Many states had anti-predatory lending laws on their books (along with lower defaults and foreclosure rates). In 2004, the OCC federally preempted state laws intended to regulate mortgage credit and national banks. Afterwards, national lenders sold their crap in those states, leading to higher default and foreclosure rates in those states.

I'll agree that Clinton bears some responsibility here due to Glass Steagal repeal and the CFMA of 2000. As does Bush with his ownership society and preemption, the ratings agencies, Congress, Greenspan, the SEC, etc, etc.

How do we leave the political crap behind and address the mechanical causes of the problem, several of which are unchanged?

Regarding the bolded sentence, could I please trouble you to post the text in the law that caused banks to lend to people that couldn't afford to buy?

"For many potential homebuyers, the lack of cash available to accumulate the required downpayment and closing costs is the major impediment to purchasing a home. Other households do not have sufficient available income to to make the monthly payments on mortgages financed at market interest rates for standard loan terms. Financing strategies, fueled by the creativity and resources of the private and public sectors, should address both of these financial barriers to homeownership."

As it turns out, it's harder to actually find this stuff now; it used to be on the website of the Department of Housing & Urban Development, and then it was removed. (likely because the whole housing fiasco made this approach seem embarrassing and absurd in hindsight). Fortunately, once something ends up in an internet search cache, even if you delete it, it never really goes away.

In your list of causes, #8 is really what I am talking about here. Creating innovating mortgages to reach more subprime borrowers. Think about it, why on earth would any businessman want to do that, unless they were strongly nudged by some government program to do so?

If you went back in time to the 80's or something before this nonsense was put out there, and you talked to any bank manager, do you really think they would say, "What we really need to do more is offer mortgages to people who really shouldn't have one in the first place because they have justifiably been labeled credit risks"

As the finance professor and senior fellow at the Wharton school of Business says, "It strikes me as reckless to promote home sales to individuals in such constrained financial predicaments."

Quote:

Originally Posted by pt

How do we leave the political crap behind and address the mechanical causes of the problem, several of which are unchanged?

I'm not sure we can leave the political crap out of it; its the promotion of political ideologies such as the socialist notion that everyone is equal in their ability to pay a mortgage, that is the genesis for policies like this in the first place.

What I'm saying is that the government never 'nudged' anyone to engage in that type of business - if they had, there'd be screaming evidence of it everywhere, far more concrete than an opinion piece without any specifics. The supporting info is so had to find precisely because it doesn't exist. Proof needs to come in the form of some statute that gives the government the mechanical ability to compel private entities into some action - OR, some wall street executives with evidence that their hands were forced somehow.

Regarding your comments on my 8th point, those subprime loans were created strictly out of the profit motive. If the lenders weren't making the fees they were making off them, they wouldn't have bothered with them. It really ends there. You appear to ignore the fact that the lenders didn't have to worry about maintaining the loans for more than a year or two because they were bundling them up and dumping them on wall street, effectively making it someone else's problem.

I'd be happy to fault socialism as the cause of this if it was. Without any hard evidence, that's just not a reasonable conclusion here. (Not that it was caused by capitalism either.)

At 134 pages, it is lengthy to read thru, but you wanted specifics. Even if you skim it, you will see many concrete things the Clinton administration did to encourage high-risk, low income people into homes that they would previously fail to qualify for. This includes things like more flexible mortgage underwriting criteria, changes to insurance, lender processing time reductions, subsidies to reduce downpayments and mortgage costs, regulatory review of manufactured homes, building code reforms to expand supply of starter homes, any many others.

It was not just a matter of Bill standing there any saying "gee, it would be great of more low-income folks had access to home ownership", and it was left at that.

Granted, there is no hard-line legislation that commands lenders to give x number of loans to y number of high-risk people in a set period of time or anything, so you cannot say they were legally FORCED into offering those mortgages against their will.

However, by removing and altering all kinds of impediments for these "subprime borrowers" to get loans (impediments that were there for very good reason), that certainly created incentives that didnt exist before. That, combined with many of the crazy changes you mentioned (like the ability to take that high-risk mortgage and dump it on someone else), all conspired to cause the collapse.

If the government hadn't removed some obstacles and encouraged the wrong type of people to try and own their own home, then no matter how lucrative the profits could have been in the absence of Glass Steagall etc., the banks would have been unable to pursue that $$$ because the influx of new buyers wouldnt have been nearly as big. Yes, they could have still used their new found ability to pass the mortgages onto someone else, but that other party wouldnt have as many problems because there would have been far fewer defaults.

Think of it this way: imagine the gov decides that cars are too expensive, the barriers to entry are too high. They want everyone to be able to have a new car. Employment will increase, people can take jobs where the busses dont run. So, they relax the rules that currently demand a certain level of crashworthiness, and things like airbags or ABS or traction control, etc. Removal of these impediments now enables GM to make a brand new (unsafe) car for $4000, which everyone can afford.

Of course, the gov is not compelling GM to make such cars, nor are they compelling poor people to buy them. All parties could choose to do nothing differently. Anyone who is not incredibly naive would realize that of course GM will start to take advantage of this, as it means more $ for them. Now the poor ditch their bus passes, without stopping to think about what it means to your face if your car does not have tempered safety glass and it hits something. After all, the president wouldnt let me put my family at risk, right ? Hooray, now we are one step closer to a classless society where everyone can own a new car.

Of course, take a look at traffic fatality statistics in a few years time, and tell me the gov had nothing to do with it.

At 134 pages, it is lengthy to read thru, but you wanted specifics. Even if you skim it, you will see many concrete things the Clinton administration did to encourage high-risk, low income people into homes that they would previously fail to qualify for. This includes things like more flexible mortgage underwriting criteria, changes to insurance, lender processing time reductions, subsidies to reduce downpayments and mortgage costs, regulatory review of manufactured homes, building code reforms to expand supply of starter homes, any many others.

It was not just a matter of Bill standing there any saying "gee, it would be great of more low-income folks had access to home ownership", and it was left at that.

Granted, there is no hard-line legislation that commands lenders to give x number of loans to y number of high-risk people in a set period of time or anything, so you cannot say they were legally FORCED into offering those mortgages against their will.

However, by removing and altering all kinds of impediments for these "subprime borrowers" to get loans (impediments that were there for very good reason), that certainly created incentives that didnt exist before. That, combined with many of the crazy changes you mentioned (like the ability to take that high-risk mortgage and dump it on someone else), all conspired to cause the collapse.

If the government hadn't removed some obstacles and encouraged the wrong type of people to try and own their own home, then no matter how lucrative the profits could have been in the absence of Glass Steagall etc., the banks would have been unable to pursue that $$$ because the influx of new buyers wouldnt have been nearly as big. Yes, they could have still used their new found ability to pass the mortgages onto someone else, but that other party wouldnt have as many problems because there would have been far fewer defaults.

There are already 47 different job training programs running at $18billion dollars a year (link from GAO) in the Federal government with no transparency on the efficacy on most of them. So I guess another $1billion dollars planting trees and saving the 3-legged spotted turtle in the Conservation Corps is called Jobs now..

If you want a real example of a working job program for Veterans.. take a look at one that actually has results: 100,000 Jobs Mission

Quote:

18,249 Veterans Hired As of June 30, 2012

I'm proud my company takes part in this initiative and I'm proud to have hired 4 people directly through this program. You should learn to lose that talking point and stop thinking more money to government solves all problems.